Tuesday, January 29, 2008

CERA: Peak Oil No Big Deal; Oil Drum/Hirsch: Come again?

ADDED Feb. 7, 2008:
A stiff challenge has been thrown down to CERA, which is led by Yergin, to put their money where their predictions are. I applaud. CERA is apparently listened to by serious people and taken seriously. This is a problem given their poor track record, noted below.

The Bet

HOUSTON (Feb. 6, 2008) – A group of businessmen and energy experts who believe that global oil production will soon peak, plateau and decline has issued a $100,000 wager to Cambridge Energy Research Associates (CERA), a prominent oil forecasting think tank. Members of the challenger group also renewed an invitation to hold a public debate on the issue of peak oil with CERA.

The group is betting against CERA’s June 2007 forecast that world oil production capacity will reach 112 million barrels per day (mmb/d) by 2017, which extrapolates* to107 mmb/d of actual production, up from about 87 million barrels today. CERA will hold its annual conference in Houston next week.

“CERA is forecasting an addition of 20 million barrels within a decade,” said Steve Andrews, co-founder of the Association for the Study of Peak Oil-USA (ASPO-USA). “That’s a vision in search of reality. Anything is possible on paper, but we are betting you can’t do that with the drill bit.”

The challenger group also notes that CERA called for a civil dialogue on peak oil, but then declined several invitations to engage in such a conversation...

“CERA projections have been wrong so often that policy makers should think twice about embracing their data,” added Bob Kanner, CEO of Cleveland-based PubCo Corporation, who has wide-ranging investments in the oil and gas industry. “I’m participating in this bet to illustrate the need for greater truth and clarity in the prediction of oil and gas supplies. We’re not just betting our money, we’re betting our nation’s future.”

...To call the bet, CERA must match the Peak Oil group’s $100,000 letter of credit from National City Corporation. In the event production in 2017 doesn’t exceed CERA’s forecast of 107 million b/d, the individuals of the group have agreed to donate their winnings to an energy-focused non-profit organization.

“If the CERA seers really believe their crystal balls, they should call our bet,” said Texas oilman Baldauf.


The Peak Oil debate bears a commonality with the Climate Change debate: The Deniers. Yes, the mysteriously funded, don't-worry-folks-nothing-to-see-here crowd that always has an answer for everything. That is, unless you actually pay attention. CERA, for example, bases their claims on a proprietary database. I.e., something that we can't take a look at to vet or confirm the accuracy of. We must take their word for it.

An interesting group of deniers is CERA. They are lead by Daniel Yergin, who is highly respected for his work documenting the history of the oil business, but has some serious detractors when it comes to his prognostications on same. Robert Hirsch, who led an authoritative study (Linked in the side bar to the right.) for the US government in 2005 on Peak Oil that came to the conclusion we are in deep doo-doo, takes on CERA's recent pronouncement that Peak Oil is a lot of nothing much to worry. They claim new fields will cover all new demand and yearly declines in existing fields. Quite a claim given we need 5,000,000 or more barrels a day in new production each year to meet that new demand and depletion - and that's if depletion is only 4.5 percent, which appears to be pretty doubtful.

First, drop down to the bottom of this blog and take a look at the chart showing production vs. discoveries. Though Hirsch's rebuttal is a good read, all you need to know to see that CERA has a snowball's chance in hell of being correct on this is what is displayed on that graph. We haven't found such amounts of oil for decades, let alone been able to produce them. Light Crude oil production peaked in 2005 at around 73,000,000 b/d. Current liquid fuel (oil, gas, bio-diesel, etc.,) consumption is more than 14,000,000 b/d above that already.

Second, go read a thorough thrashing of Yergin's and CERA's prognostications through the years written by Glenn Morton, a geophysicist in the oil industry, over at The Oil Drum, found here.

Third, if you haven't hurt yourself falling over with laughter at the absurdity of CERA's claims by then, read Robert's rebuttal, partially reprinted below. CERA's claims can be accessed here, but it's behind a firewall at the WSJ. The full article can be found here. You can read all of Hirsch's rebuttal by clicking on the title below.

The WSJ Article on a CERA Oil Decline Study Written by Robert L. Hirsch
Monday, 28 January 2008
On January 17, The Wall Street Journal published an article entitled New Fields May Offset Oil Drop, reporting and commenting on a study by CERA entitled, “No Evidence of Precipitous Fall on Horizon for World Oil Production: Global 4.5% Decline Rate Means No Near-Term Peak: CERA/IHS Study.” Here are some WSJ article highlights and related comments / questions:
"Output from the world's existing oil fields is declining at a rate of about 4.5% annually."
Comment: Because of CERA's established record of marked optimism in oil and natural gas, a prudent observer might assume 4.5% as a lower bound on this extremely important parameter.
"This study supports a view that there is no impending short-term peak in global oil production."
Comment: What does short-term mean? The world has been on a liquid fuels production plateau since mid 2004, when viewed in the framework of a 4% fluctuation band, which was independently developed...
"The CERA study, however, asserts that fewer than half of the fields scrutinized were in decline."
Comment: ...this statement is without value. What matters most is which giant fields are now in decline, how fast they are declining, and how close other giant fields are to going into decline.
"This is a daily, hourly and minute-by-minute challenge for the world's oil industry."
Comment: If world oil production is as robust as CERA claims, why make this rather ominous statement?
"Andrew Gould, the longtime chief executive of oil-services titan Schlumberger Ltd., has estimated that the industry's average decline rate is closer to 8% a year and growing."
Comment: Schlumberger may have better data than anyone else on oil fields throughout the world, because they operate almost everywhere that oil is produced. This includes the OPEC countries... Indeed there is no indication that IHS/CERA has better oil field data than anyone else. Schlumberger and Gould have been too responsible for too long to believe that they would off-handedly estimate an 8% decline rate without knowing the facts...
"CERA argues that nearly half of that output will come from non-conventional sources such as biofuels and natural-gas liquids."
Comment: How is this credible without a worldwide crash program, which has not yet been seriously considered, let alone initiated?

...Finally, CERA, like others, has made a number of incorrect forecasts in the past, so why should their work be taken at face value now? CERA asks the world to trust it, but with the risks of error being so large, would that be prudent?

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